For nearly 80 years, the US dollar has reigned supreme as the world’s undisputed reserve currency. It is at the heart of global trade, the anchor for central bank reserves, and the default currency for international transactions and loans. This dollar hegemony has bestowed upon the United States immense economic and political power. However, a palpable shift is underway. Dedollarization is gaining momentum worldwide, challenging the dollar’s monopoly and reshaping the global financial landscape of the 21st century.
Dedollarization is not a one-off event, but a multi-faceted process through which countries seek to reduce their dependence on the US dollar in international trade and finance. This involves diversifying foreign exchange reserves, establishing alternative payment systems, and creating new financial institutions outside the traditional US-led framework.
The pillars of dollar dominance
To understand dedollarization, one must first grasp how the dollar acquired its privileged status. This system was architecturally designed in the aftermath of the Second World War.
The Bretton Woods Agreements (1944) are the cornerstone of dollar dominance. This conference established a system where world currencies were pegged to the US dollar, which itself was convertible into gold at a fixed rate of 35 dollars per ounce. This made the dollar the benchmark and the primary reserve currency in the world.
Then, in 1971, President Nixon ended the convertibility of the dollar into gold, and the Bretton Woods system collapsed. To maintain demand for dollars, the United States struck a crucial deal with Saudi Arabia. Saudi Arabia would charge for its oil exclusively in US dollars and reinvest its surpluses in US Treasury bonds. In return, the United States offered the country its military protection. This agreement was quickly adopted by other OPEC nations, creating a perpetual global demand for dollars to buy the world’s most sought-after commodity: oil. The Petrodollar system was born.
“It means that before buying any raw materials, one must first convert one’s own currency into dollars. And therefore, by doing so, we support the value of the dollar and American debt is supported and is particularly attractive,” commented political scientist Thierry Laurent Pellet for International Reporters.
But the power of the dollar does not lie solely in the existence of the Petrodollar system. It also comes from the fact that the United States has the largest, most liquid, and most diversified financial markets in the world. For a country or a company, holding dollars offers unparalleled access to a wide range of safe assets (like Treasuries) and facilitates international transactions through established systems like SWIFT (Society for Worldwide Interbank Financial Telecommunication), which, although officially neutral, is in reality heavily influenced by US policy.
The timeline of dedollarization
The process opposing dollar dominance is not new, but its intensity and participants have evolved significantly in recent years.
The launch of the euro in 1999 created the first viable monetary alternative.
“The euro took 18% of the global currency market share. It cast a large shadow over the dollar despite the fact that all Western countries, even those in the eurozone, bought American debt massively,” emphasized Thierry Laurent Pellet.
Following the 2003 Iraq war, Saddam Hussein’s announcement that he would switch Iraqi oil sales to euros was perceived by many as a key trigger for the American invasion, which served as a serious warning to anyone who might have the idea of doing without the dollar. Then, the 2008 global financial crisis, born on Wall Street, was a profound shock. It exposed the vulnerabilities of a dollar-centric system and triggered the first serious discussions within emerging economies about the need to create alternative systems.
But the critical phase of dedollarization began in 2014, when following the reintegration of Crimea into the Russian federation, the US and EU imposed sanctions, cutting off major Russian banks and entities from Western capital markets. This use of the dollar as a geopolitical weapon was a wake-up call for Moscow, Beijing, and other countries about their vulnerability to US financial power.
Then, between 2018 and 2023, the Trump and Biden administrations significantly expanded the use of financial sanctions, not only against Russia but also against Iran, Venezuela, and China (via tariffs). The most striking action came in 2022 following the launch of the special military operation by Russia. The US and its allies froze about 300 billion dollars of Russian central bank assets and cut off Russian banks from the SWIFT messaging system. This use of the dollar as a weapon was perceived by many countries of the Global South as proof that dollar assets were not safe, as they could be seized in case of geopolitical disagreement. This act became the main catalyst for an acceleration of dedollarization now coordinated among non-Western-aligned countries.
Building the alternatives: the architecture of a new system
The dedollarization movement is not just about rejecting the dollar; it is actively building parallel systems. This development is happening on several fronts.
First, bilateral trade in local currencies. BRICS countries and those of the Global South are increasingly avoiding the dollar and now settle the majority of their trade directly in their own currencies. Thus, over 80% of bilateral trade between China and Russia is now conducted in rubles and yuan. For their part, India and the United Arab Emirates use rupees and dirhams in their trade. Finally, a major goal of the expanded BRICS group (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, United Arab Emirates) is to promote settlements in local currencies to reduce dependence on the dollar.
The development of alternative payment systems
There are currently two interbank messaging systems that have been created as alternatives to SWIFT.
The SPFS (System for Transfer of Financial Messages) was created by Russia after the 2014 sanctions. It is the Russian domestic equivalent of SWIFT. Its use has increased significantly since 2022, although it remains largely confined to a small network of partner countries.
For its part, China launched the CIPS (Cross-Border Interbank Payment System) in 2015. It is a messaging system that processes and settles transactions denominated in yuan. Although it still often depends on SWIFT for messaging, it provides China with a foundational infrastructure for an independent financial network.
The emergence of digital currencies
Central Bank Digital Currencies (CBDCs) are another mechanism of dedollarization. Because a digital currency allows direct cross-border peer-to-peer transactions that could potentially bypass traditional (dollar-based) banking networks. The Chinese digital yuan (e-CNY) is currently the most advanced among major economies. Many other countries are exploring CBDCs, which could facilitate a new era of international settlements. Discussions are also underway to create a digital payments platform connecting the CBDCs of BRICS nations, the BRICS Bridge platform, which would create a powerful multi-currency financial network.
The diversification of foreign exchange reserves
Little by little, central banks around the world are diversifying their foreign exchange reserves. Although the dollar still holds a share of about 59% (compared to over 70% in the early 2000s), there is a steady accumulation of gold, euros, Chinese yuan, and other assets. It is a slow and deliberate process to reduce exposure to US debt and potential asset seizure risks.
The creation of alternative financial institutions
Dedollarization also involves the creation of international financial institutions that compete with those largely dependent on the West and the dollar.
BRICS members created the NDB (New Development Bank), also nicknamed the “BRICS bank,” which aims to provide funds for infrastructure and sustainable development projects in emerging economies, offering an alternative to the US-dominated World Bank and IMF.
For its part, China created the AIIB (Asian Infrastructure Investment Bank), another multilateral institution that challenges the traditional Bretton Woods twins (IMF and World Bank).
Obstacles to dedollarization
Despite the launch of the dedollarization process, a complete replacement of the dollar is highly unlikely in the short term, as it still enjoys significant advantages.
The dollar is still supported by US capital markets and the US economy. The euro is the only potential rival, but it lacks a unified fiscal union. The Chinese yuan is hampered by capital controls, a lack of full convertibility, and an opacity in its financial and political systems, limiting its appeal as a true reserve currency.
The international financial network also has significant inertia. The entire global financial ecosystem (invoices, contracts, raw materials, debt) is denominated in dollars. Pivoting this colossal system is like maneuvering a huge ship: it can be done but it is very slow.
The other parameter hindering dedollarization is the absence of a unified alternative. There is no single currency capable of dethroning the dollar. The emerging alternative system is more likely to be multipolar with several key currencies (dollar, euro, yuan) sharing influence, as well as regional blocs.
Dedollarization leads towards a multipolar financial world
Dedollarization is real and accelerating, but it is better understood not as the imminent collapse of the dollar, but as the fragmentation of the global financial system into spheres of influence.
The use of the dollar as a financial weapon has triggered a defensive response, primarily from geopolitical adversaries like China and Russia, but also from neutral countries seeking strategic autonomy.
“States of the Global South tell themselves that if Russia can counter the United States in this way, the only thing left for them to do to avoid the pressures that the dollar systematically imposes is to align with Russia and show that today we can raise our heads and we can say no. And that’s what’s happening,” explained Thierry Laurent Pellet.
The result will likely be a more complex, less efficient, and potentially more volatile world with competing financial networks: one centered on the US dollar and another, developing one, centered on China and its partners, using the yuan and local currencies.
“During the 2024 Kazan summit, BRICS+, discussed the establishment of a commodity trading platform and that is totally new. During 2026, they will test with grains and diamonds, that represents a market of 200 to 250 billion dollars, it’s not huge compared to the energy market but it sends a very strong signal, it sends a signal saying watch out United States, if you continue like this we will drain both the NYMEX and the COMEX, which means that the New York exchange will be completely flattened in terms of commodity trading and if you put pressure on us, we can also add oil. And if they do that, it’s the end of the United States. It’s over,” explained Thierry Laurent Pellet.
The era of the dollar’s undisputed hegemony is coming to an end. In its place, a contested and multipolar financial order is emerging where economic diplomacy and the choice of currency will become tools of geopolitics more critical than ever. Dedollarization is underway and the final form that the international financial system takes will define the balance of power for the decades to come.
Christelle Néant
